Policy Papers

Fund-Supported Programs and Crisis Prevention

Publication Date:

March 23, 2006

Electronic Access:

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Summary:

This paper examines the theoretical foundations for, and empirical evidence of, Fund support in preventing capital account crises. At a theoretical level, Fund supported programs can lower the crisis probability in two ways. First, such programs provide the member with additional external reserves, making a run for the exit by private creditors less likely. Second, such programs induce and signal better economic policies, though this needs to be supported by conditionality.

Series:

Policy Papers

Subject:

Balance of payments Conditionality Crisis prevention Exchange rate policy surveillance Fund-supported adjustment programs